Penny Auctions (Interesting Article)

  • avatar

    by: bacpro
    SaleHoo Master Member
    330 posts

    Penny Auctions (Interesting Article)

    Posted 7 Dec 11 4:39 pm.

    Penny auctions, which promise winners fantastic products at
    knockdown prices, are not always what they seem.

    The true cost of buying is always higher than the winning bid
    price because you have to pay for each bid you make and you're
    never quite sure when the auction will end.

    In this week's issue, we explain how penny auctions work and
    reveal the tricks some of the operators use to get their hands
    on your money.

    As always, we also recommend you check out the most popular
    articles from our other sites during the past week:

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    Why Penny Auctions Don't Always Deliver a Bargain
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    When you're looking online for electronic products at bargain
    prices, you've almost certainly come across those penny
    auctions ads that seem to offer unbelievable value -- like
    your favorite laptop or camera for just $20 or $30.

    But there's a catch. In order to buy at that price, you have
    to win the auction. And in order to win the auction you have
    to pay to bid. If you don't win, you lost the money you laid
    out for each bid you made.

    That, says the Federal Trades Commission (FTC), makes penny
    auctions more like lotteries than regular auction sites.

    Still, you might say, as long as you know the risks, it's okay
    to play.

    However, even then not all penny auction sites are what they
    seem.

    Some operate questionable tactics to lure people into playing,
    while others have gained reputations for poor product quality
    and late, or non-existent, delivery.

    How Penny Auctions Work

    Usually the item that's put up for sale is provided by the
    auction site operator. The price starts at or near zero and
    the price increases by 1 cent per bid.

    However, in order to make a bid, you have to own a bid credit.
    Each bid credit costs between $0.50 and $1 and you have to buy
    them in advance, usually in packages of around 100, after
    registering with the site.

    So, to keep it simple, if a bid costs, say, $1 a time, a
    package of 100 bid credits will set you back $100 and each
    time you bid and up the auction price by a penny, it costs you $1.

    That means from the penny bid auction's point of view, an item
    that "sold" for $20 will actually have required 2,000 bids
    (the number of cents in $20). So the site operators have
    already made $2,000 from the bid credits they sold!

    Just to make things a little trickier, the auction deadline
    gets pushed back or is totally reset each time a penny bid is
    made, so you never actually know when the auction is going to
    end.

    You can put in a bid when there are just five seconds to go,
    thinking you're going to win, but the clock gets reset, other
    bidders jump back in, and off you go again.

    In a way, you're bidding against the clock. You could use up
    your whole $100 credit package, caught up in auction fever,
    and not win a thing.

    No wonder that some people have compared penny auctions to
    gambling, though the industry itself disputes this and prefers
    to call them "entertainment shopping" or "retail
    entertainment."

    Now let's take a close look at some of the activities that go
    on behind the scenes -- though we're not suggesting all penny
    auctions operate this way...

    Penny Auctions Scams and Tricks

    To get their hands on your money, some of the less reputable
    penny auction sites engage in dubious or downright illegal
    practices that include the following:

    * Using third parties to advertise products for sale at
    unbelievably low prices on classified ad sites like
    Craigslist, and then telling would-be buyers the item is sold.

    The advertiser then claims he bought the item on a penny
    auction site and directs the callers to visit it.

    If the caller then buys a credit package on the auction site,
    the Craigslist "advertiser" collects a hefty commission.

    * Using shills and automated bidding systems to push up
    prices, keeping the bidding going and constantly resetting the
    clock.

    * Charging a registration fee, thus getting your credit card
    number and then automatically charging the card for bid
    credits.

    Often, operators have a statement on their site warning that
    this will happen but then they hide it away in barely
    comprehensible print.

    Sometimes, they lure bidders by offering free bids, but,
    again, they get your credit card number and charge an
    additional credit package to it.

    Again, there may or may not be an obscure statement about this
    somewhere on the site.

    * Not making it clear that if you do win the auction, you
    still have to pay the winning bid amount plus shipping
    (perhaps at inflated prices) and sometimes even a transaction
    fee.

    * Failing to send out the item to the winner, or seriously
    delaying shipping.

    * Sending out an item that's different from the one which
    you bid on -- usually lower quality or totally different.

    * Running bogus testimonials from supposedly happy, winning
    bidders, both on their sites and in penny auction ads.

    * Falsely claiming to be registered with and highly rated by
    the Better Business Bureau.

    * Simply using the site as a front for phishing for your
    credit card number, shipping address and other personal
    details.

    How to Avoid Penny Auction Scams

    By one estimate, there are now about 100 penny auctions
    operating online and some of them have gone out of their way
    to distance themselves from the less reputable sites.

    But it's often difficult to know who's legit and who isn't.

    So, first, know that the odds are against you winning and that
    some people consider it a form of gambling.

    In that case, you should only ever play with money you can
    afford to lose.

    And be aware of how much the site operator is making from bid
    credits sold for each item.

    What they're doing may be perfectly legal but it helps that
    you keep a sensible perspective on what's actually happening.

    Second, the FTC has issued a consumer alert which details how
    these auctions operate and how to avoid some of the pitfalls.

    Read it at:
    link hidden

    Finally, always check out what others are saying online about
    any site you're planning to use -- but beware of those phony
    testimonials.

    Better to do a search with the name of the site followed by
    the word "scam" and see what comes up.

    After all, life has enough uncertainties without penny
    auctions adding to them!

    Article From:
    Internet Scambusters Newsletter #469

    J Baca
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    (Looking for Cheep Software, Look no further)
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    (Worried about the economy? Lose those worries.)
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  • avatar

    by: fudjj
    SaleHoo Staff
    2969 posts

    Re: Penny Auctions (Interesting Article)

    Posted 7 Dec 11 8:28 pm.

    Thanks for posting bacpro,

    My personal opinion of these type of auctions isn't that high, and while they are enough to try and get yourself a bargain, should never be used as a possible supply source.

    I'm sure there would be quite a few that would throw the dice and try their luck, thinking they are in with a real chance of picking up some bargains to resell with solid margins, but that's a fools game ........... stay well clear for my money!

    Marc Ransom

    Community Manager
    SaleHoo.com

    About the Community Manager